Managing risk taking with interest rate policy and macroprudential regulations

Arbeitspapier

We develop a model in which a financial intermediary's investment in risky assets - risk taking - is excessive due to limited liability and deposit insurance and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with state-contingent macroprudential regulations, either capital or leverage regulation, and a tax on profits achieves efficiency. Interest rate policy mitigates excessive risk taking by altering both the return and the supply of collateralizable safe assets. In contrast to commonly used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2016-47

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Portfolio Choice; Investment Decisions ; General Financial Markets: Government Policy and Regulation
• Subject: Financial system regulation and policies ; Monetary policy framework

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cociuba, Simona E. ; Shukayev, Malik ; Ueberfeldt, Alexander
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2016

Further information

• DOI: doi:10.34989/swp-2016-47
• Handle: http://hdl.handle.net/10419/171938
• Last update: 10.03.2025, 11:43 AM CET